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GST Changeover : Get It Right
| WHEN we prepare your annual accounts for the 2011 tax year (ending 31 March 2011 for most people), we are going to need to know which transactions have 12.5% GST in them and which ones have 15%.
If you are on a payments basis, you will be making an adjustment for debtors (money owing to you) and creditors (money owing by you). Keep details of your calculations and supply these to us when you bring in your annual accounts material. To minimise the risk of confusion, it would be helpful if you stopped making payments by cheque a few days before 30 September. |
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If you make a mistakeThe Minister of Taxation has inserted an extra clause in the Act which increased the rate of GST. IRD is not allowed to charge penalties OR use of money interest if you have to correct your 30 September GST return, provided you have taken reasonable care so the mistake is not bad enough to warrant them charging shortfall penalties. If you think you have a problem with this adjustment, please call us for help. |
Selling Property You Have Purchased “Off the Plan"
IF YOU, or a friend, sell a property you intended to invest in "off the plan", you could be facing a tax bill.
This often happens, without any thought of tax consequences, when the buyer changes his/her mind
before the building is complete. This is a tricky area. Consult us before proceeding.
Progress Payments and GSTGST is payable at the earliest of the time a payment
is due, at the time a payment is made or at the time an invoice is issued, If you are receiving progress payments and your customer is not a business registered for GST, you should make sure you issue your progress payments on time. Customers who expect to pay 12.5% GST are going to be unhappy if you have to charge 15%. You are not unreasonably entitled to bring forward your progress payments just to avoid the 15% rate. That is avoidance and IRD takes a dim view of arrangements designed to dodge tax. KiwiSaver to be 10%THE GOVERNMENT is extending the contribution rates allowed to KiwiSaver. Currently the rates are 2%, 4% and 8%. New rates of 6% and 10% are to be added. This is great news for those nearing retirement, who may be keen to use the 10% rate.
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Bank Charge AnomalyA CLIENT was using her credit card while shopping in Melbourne. The shop assistant put through the payment in the usual way and was asked for a tax invoice. Our client wanted to claim back GST when she was at the airport. “I can’t give you a tax invoice on this machine,” the shop assistant said. “It is not working properly. I will give you a credit note, then we will put the transaction through on the other machine.” This resulted in two debits to the credit card account and one credit, all for the same amount. When our shopper got back to New Zealand she discovered two debits on her bank statement for the identical amount, but the credit was $25 less. When she inquired at the bank, the reason became clear. In the case of the two debits, she was buying money from the bank and in the case of the credit she was selling money to the bank. If you are shopping overseas, remember if a charge is cancelled and a credit put through, you will have to pay the currency difference. |
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31 March?
Answer: Because the IRD is only allowed to go back and reopen an honest tax return for a limited
period of time, which is about four years. Tax returns lodged by 31 March 2011 for the 2010 tax
year cannot be reopened by the IRD after 31 March 2015.
Why is this so important?
Sometimes we have to use judgment about claiming expenses. Other times we have to make
decisions which we believe are OK and would stand scrutiny, but in later years IRD interpretation
changes and the same transactions become less acceptable.
An example is tax avoidance. A few years ago it was generally accepted that, so long as there
was a commercial reason for what was happening, taxpayers were entitled to arrange their
affairs in such a way as to minimise the incidence of tax. This is now debatable.
The test now is, would the Government have contemplated our doing whatever it is we are
up to and approved?
An example is salaries for full-time employees of their own companies. A few years ago you
could nominate as low a salary as you wanted, if you were working for your company full time.
In 2001 the Government introduced a higher tax bracket of 39 cents in the dollar. This rate
became effective for all salaries over $60,000. Therefore, accountants used to limit salaries
to $60,000 and leave the rest of the profit in the company, whenever they could.
To minimise tax, they arranged for the biggest shareholder to be a family trust. Dividends
would be paid by the company, mostly to the family trust, and “Hey presto”! Income over $60,000,
which would have been taxed at 39%, was now being taxed at 33%.
In recent times the IRD has been attacking the low salaries, particularly where the recipients
are only supplying their own skills, such as surgeons.
Conclusion:
Make sure all your tax returns are lodged by 31 March and that you give us sufficient time to
get your work completed. Don’t forget to allow for the fact others might be running late and we
could be swamped with work in March. Also, we might have to deal with queries and have to put
your job aside while we get answers from you or someone else.
Do you really want to be noticed by IRD? It’s better not to be one of those who are chronically late.
We’d much prefer to see you well before Christmas, please.
Making Life EasierACCOUNTANT’S TIP WHEN filling in IRD forms, beware of situations where a figure is repeated. For example, a client working out GST declared total sales of $15,353, but then mistakenly used the figure $13,535 as the basis for calculating income tax because the form required the sales figure to be repeated three times. |
Make Money with Organised Follow-up?HOW do you make sure you follow up on the things you plan to do and the replies you want from your correspondence or quotes? How can you do this most efficiently? One of our clients uses a concertina file and puts copies of documents he wants to follow up in date sequence. He says this involves no writing at all. If you are going to use an electronic system, make sure it requires a minimum amount of your time to maintain it. Another client is always quick off the mark with quotes and follows up meticulously. His prices are always high but he gets plenty of work. |
You can Negotiate with your BankONE of our clients was concerned about the cash handling fee he was being charged. He called on the bank manager and pointed out his staff were there to count the cash and to make an extra charge simply because his business had more cash than cheques, was double charging. |
How Not to Impress Customers with Discounts
DISCOUNT vouchers can work well, but can also do harm.
A man went to a clothing store with a voucher for 10% off any clothes purchased. A couple of weeks later
he ordered a suit for $2500 and was told the discount had just expired. Would he like a tie in lieu? He was
not impressed.
Would you pay $250 for a tie? That was the offer made to the man buying the suit. Yes, the 10% offer had
expired but the store was dealing with a customer who bought there before. Wouldn’t it have been better
to be generous? A comment like “We don’t normally extend our deadlines but as …” would have made the
customer feel special and grateful, instead of resentful.
A big store advertised it would give away gift vouchers to customers who bought more than $100 of specified
products. A woman spent $120 but the vouchers, worth $30, were not offered. When she returned home, she
checked the newspaper and had to go back to the store to get the vouchers. She was likewise unimpressed.
If you offer discounts, look at what you are doing through your customers’ eyes.
Customers are precious, particularly at the moment. Don’t upset them.
Review Your InsurancesOUR client had rented the same premises for 30 years. A couple of months ago he arrived at his offices to an appalling smell. No one could tell where it came from. It smelt like something burning and after about half an hour it dawned on him it was probably a light fitting. Luckily the offices are fairly light and everyone could manage without artificial lighting. All lights were turned off and an electrician was called immediately. “That evening I started to wonder whether I was covered by insurance, so took off down to the office to check,” he says. “I found the policy and to my relief my public liability insurance was $2 million. “I then started to do the arithmetic. How many square metres of building would be destroyed if there was a fire? There is a shop on the ground floor with expensive stock. What might that be worth? What if the owner had to relocate premises, was unable to do so and therefore sustained a loss of income and possibly a need to maintain staff while out of business? “I totaled it all up. Gees I said, $5 million might not cover the bill! I immediately got on to my insurance company and lifted my public liability to $10 million.” When did you last review your insurance covers? Another client had professional indemnity insurance. When he looked closely at the exclusions, he discovered one of his major risks was listed as an exclusion! Do you check the wording of your insurance policies? When you have to make a claim, you might wish you had done this. |
IN BRIEFDo you deduct PAYE? DON’T forget to get the new tax tables from the IRD website for salary and wages paid from 1 October. The department will not be posting them to you. All income tax rates will change. Claiming carbon credits OUR client is arranging her own funeral. She has asked the undertaker to plant a tree on top of her grave and is currently trying to work out how she is going to claim the carbon credits. She says she would prefer an advance payment! Price increases PUT prices up a little and often. A client increased his prices 16.7%. He upset some customers. It was his first increase in 10 years. Never give your customers major nasty surprises. What about a policy of reviewing prices the same time every year? Beating competitors for scarce staff WHEN advertising for staff, look at the job from the point of view of the potential employee. If the person you are looking for is scarce, you will need to entice applicants. This means selling the job to applicants. What does your firm offer that others don’t? Is it learning new skills, an opportunity to become a shareholder, great working conditions (be specific) or what? Many advertisements are presented from the employer’s point of view – these are the skills we want etc. Present the job from the employee’s point of view if you want to have a more successful advertisement than your competitors. |
Do You ‘Own’ - Not Just Rent - Your Customers?
A CLIENT told us this story.
“Every time I go to lunch I choose a particular coffee shop because they look after me. They know I like
tea so they get it ready as soon as they see me come into the shop.
“They put two tea bags in the pot because I like it strong. They are the only people I have known to do this.
“A posh French bakery has opened up in the town and I am sorely tempted to try it. However, I feel I have a
loyalty to the original coffee shop. I am being tugged back to them.
“I sort of feel they own me.”
Customers who would go elsewhere for a better deal are rented. Those who would remain loyal to you are
indeed owned. How many of your customers do you own?
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August 301st instalment of 2011 Provisional tax if you pay three times a year (March balance dates)
September 282nd instalment 2011 Provisional tax (December balance dates)
October 281st instalment of 2011 Provisional tax for those who pay GST twice a year. (All March balance dates)
November 291st instalment of 2011 Provisional tax (June balance dates) |
